Watchdog condemns 'shocking' fuel poverty

The government will be publicly castigated this week over its failure to help poor people - by the watchdog that ministers set up to monitor fuel poverty. Ofgem, the energy regulator, will also be criticised for not stopping energy companies from making excessive profits at the expense of consumers.

Peter Lehmann, chairman of the Fuel Poverty Advisory Group, will criticise the government over its record on fuel poverty, which he labelled 'incomprehensible, unjustifiable and shocking'. Consumers now pay more than 50 per cent more on utility bills compared with five years ago, yet energy companies' costs have risen by only a fraction of this. In the past month, four of the biggest suppliers have announced substantial rises in the price of gas and electricity.

On Friday, Scottish Power became the latest major energy supplier to increase bills, raising them by 15 per cent. British Gas, EDF and Npower have all done the same. Eon is expected to follow in the coming weeks.

Figures seen by The Observer also show that households using more expensive prepayment meters - typically people on lower incomes - are paying more than ever compared to those paying by direct debit. According to the consumer group Energywatch, the million households on prepayment meters in the UK now pay on average 20 per cent more than direct debit payers.

British Gas is the biggest culprit, with meter customers typically paying £1,144 a year for electricity and gas against £742 for those paying online. The company, like other suppliers, offers lower or 'social' tariffs for its poorest customers, which helps about 340,000 of them. But Energywatch recently found that its social tariff was still £96 more expensive than its cheapest deals.

Soon after Labour came to power, the government set a legally binding target to eradicate all fuel poverty among vulnerable households in England by 2010. It also has a legal target to eradicate all fuel poverty in the UK by 2018.

But as The Observer revealed last month, one in six households now lives in fuel poverty - and that's before Scottish Power's increase on Friday. Households living in fuel poverty are defined as those spending more than a tenth of their income on electricity and gas.

The government has blamed rising wholesale prices for pushing many people into fuel poverty. But last year it cut spending on its Warm Front programme, which provides grants to insulate the homes of people on lower incomes, by nearly a quarter for 2008-11 compared with 2007-08. This is despite receiving nearly £400m more in VAT receipts from gas and electricity customers than in 2003 as a result of the price rises.

Lehmann said: 'We find the government's cut of its Warm Front funding incomprehensible. The differentials between those paying on prepay meters and those paying by direct debit is shocking.'

A spokesperson for the Department for Business, Enterprise and Regulatory Reform said: 'Tackling fuel poverty is a priority for the government. It's concerning that, due to rising fuel prices, more people are having to spend a large portion of their incomes on heating their homes. This makes our commitment to eradicate fuel poverty more important than ever.'